Improving the quality and efficiency of diabetes care in the United States is a matter of serious concern and urgency. The aim of this study is to develop a method that can measure relative efficiency among diabetes ambulatory care centers in treating insulin-dependent diabetes mellitus (IDDM). Efficiency is understood as the technical efficiency in which health care resources transform into positive health outcomes. The method should be capable of identifying strong and poor performing providers according to the whole system of ambulatory diabetes care as well as objectively ranking them according to their relative efficiency. It should also be able to explain the reasons for their relative ranking and indicate how individual providers can improve their efficiency. Finally, the method should be easily understood by a wide audience and easily applied to different health care settings. The study design involves estimation of relative efficiency among diabetes care teams by observational data from the ambulatory setting according to two types of case-mix adjusted efficiency scores: (1) the efficiency in which labor resources transform into processes of care; and (2) the efficiency in which processes of care transform into positive health outcomes. Methods include quantitative testing of efficiency models by Data Envelopment Analysis (DEA) and Analysis of Variance for Repeated Measures (ANOVA) using non-discretionary variables and covariates respectively to account for case-mix differences. In addition, there will be qualitative international evaluation of the method by providers, payers and regulators in the diabetes care community in Denmark and the United States. The study site was the Steno Diabetes Center, Copenhagen, Denmark (1995-2000). Approximately 3,500 Type 1 patients between the age of 18 and 65, treated by one of five diabetes care teams, will serve as participants. Glycemic control, blood pressure and total cholesterol level, cholesterol monitoring, annual foot and dilated eye examination and assessment for nephropathy, as defined by the Diabetes Care Improvement Project (DQIP), will serve as measures. Resource measures include use of all clinical personnel involved in treating IDDM. Case-mix adjusters include: age, duration of diabetes, current foot ulcer and/or amputation, the presence of neuropathy, nephropathy and/or retinopathy, patients requiring interpreters for communication (a proxy for ethnicity), residence in nursing homes, prisons and similar institutions, and level of medication prescribed in the beginning of the study period.